International Trade Competitiveness Scenario

Imagine a scenario where the general price level for goods produced in Country A remains stable. Simultaneously, the general price level for goods in Country B rises significantly. If the rate at which Country A's currency can be exchanged for Country B's currency stays the same, what is the most likely consequence for Country A's products in the international market?

If a country's currency experiences a real depreciation, it means that its goods have become more expensive for foreign buyers, thereby reducing the country's international competitiveness.

Consequences of Real Currency Depreciation